Why Ambarella Is A Cheap Stock Before Earnings

| About: Ambarella (AMBA)

Ambarella (NASDAQ:AMBA) is a stock I have been buying on dips in the last few weeks. AMBA develops semiconductor processing solutions for video that enable high-defintion video capture, sharing and display. The company designs fully integrated high-definition video-processing, image sensor processing and audio processing.

I am a buyer mainly because of its relationship with GoPro cameras. You can view this video about GoPro cameras and its CEO. In a recent trip I made to Whistler, many skiers were wearing these cameras. These cameras are based on AMBA's solutions. The company has collaborations with Samsung (OTC:SSNLF) and TSMC (NYSE:TSM). It also works with ARM Holdings (NASDAQ:ARMH) for the latest ARM CPU technology.

Fundumental Analysis

AMBA currently trades at $11.15, giving it a market capitalisation of around $290 million. The company has 0 debt, and around $95 million in cash. The float of the company is only around 12 million shares. Having no debt and a hefty cash position reduces the chances of any secondary offering of shares.

Here is what caught my eye.

In 2014, AMBA's revenues are expected to be around the $142m mark. This is an impressive number since the market capital of this company is only $290m (Remember the extra 495 million in cash). The company managed to beat estimates by 24% in their last earnings call. The net income for nine months ending 2012 were up to $14.5 million from $8 million for the first nine months of 2011. Their next earnings call will be on March 7th after the market closes.

Technical analysis

On the daily chart, one can see the recent breakout on expanding volume out of the base that has been forming since early February. Volume is increasing showing that institutions are loading. Furthermore, stochastics show a nice uptrend.

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Analysts targets

Analysts at Morgan Stanley have an overweight target of $12 price on the stock. Deutsche Bank have a buy rating of $10. Finally, Needham and Company have a $12 target on AMBA. I believe these analysts will be upgrading AMBA in the next few days.


I expect big numbers in AMBA's next earnings call. The company definitely has a product niche and it is the leader in the sports cameras field. I continue to be a buyer, and ultimately believe AMBA can trade at yearly highs after the next earnings call.

Disclosure: I am long AMBA. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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